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Ongoing concerns about the US economy and the USD are causing lots of gold volatility. There are concerns that the USD might set new low levels, and I put out an alert to subscribers that gold may have set a new temporary low in the mid $770s.
With the US economy showing signs of slowing, not only gold, but the base metals have taken a hit, particularly as Chinese base metal demand has not proven to overtake reduced demand from the US sector. Of course, we have been on the refrain for several years that China is in no position yet to make up for any significant demand drop in base metals from the US/West as of yet. Maybe in a number of years, if China and India can get enough consumers buying goods internally, that might change.
But, in any case, ongoing concern about the US economy continues to drive markets worldwide. Between the ever increasing losses in the US financial sector, and the very large Western credit contraction, prospects for economic growth in the US and West are fading. The likelihood of further US rate cuts, even a possible surprise cut before the next Fed window, is causing the USD to weaken further.
This, combined with ongoing discussions in the Middle East to move from USD pegs to a currency basket (still heavily USD weighted) and a story on CNBC that a Chinese state media outlet suggested that wealthy Chinese consider moving out of the USD and into the Yuan and Euro is hitting the USD hard.
We have stated for several years that the USD footprint is so huge, and since gold is a central bank reserve asset, that any USD moves outweigh other Gold factors by over a thousand to one.
With the ongoing pressures for the US Fed to cut interest rates, the USD remains under severe pressure, and it is possible gold has found its low in this latest profit taking binge to the mid $770s Monday night.
Balanced against these gold bullish factors, are continuing concerns of further world financial market weakness, and a strengthening Yen is causing some market selling of late. However, I would not be surprised if there is a pause in the Yen’s rise. But a pause only. There is always the risk in these tenuous stock markets now of major sell offs and gold liquidation.
We had put out an alert to subscribers of a general financial market selloff (that includes gold) on Oct 30, and since then the world stocks had sold off quite a bit and so had gold in liquidation and profit taking.
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Christopher Laird
Editor-in-Chief
www.PrudentSquirrel.com
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